New Hope Corp Ltd (ASX: NHC, OTC: NHPEF), which posted fiscal 2012 first-half (ended Jan. 31, 2012) earnings Mar. 20, at the same time it reported earnings boosted its interim distribution by 14.3 percent to AUD0.06 per share.

That hasn’t stopped what’s been a steady decline in the share price over the past six months.

Since Sept. 26, 2011, when it debuted as a member of the “Eight Income Wonders from Down Under,” the original AE Portfolio, New Hope has generated a total return in US dollar terms of 10.6 percent.

That pales next to the S&P/ASX 200 Index’s 20 percent-plus total return. And it shrinks compared to the average AE Portfolio gain of 26.1 percent.

A source of some angst, too, is the thought that the stock, driven by takeover speculation fueled by management’s attempt to conduct an official auction after backdoor inquiries were made, reached as high as AUD6.54 on its home Australian Securities Exchange (ASX) in mid-October, only to come all the way back to where we started.

It closed at AUD5.02 on Sept. 26, 2011, and it closed at AUD5.02 in Sydney on Apr. 11, 2012. The double-digit gain is a function of a stronger aussie versus the buck and dividends paid and declared during our holding period.

Speculation about a takeout offer in the AUD7 per share neighborhood extinguished, it’s time to re-focus on fundamental issues.

Fiscal 2012 first-half operating results for the producer of thermal coal–used to fire power stations to produce electricity and still the world’s second most important source of energy behind crude oil–were solid, built on production gains and price increases.

Interim underlying earnings were up 25 percent to AUD101.1 million in the six months ended Jan. 31, driven by a combination of increased production and exports and higher export prices in US dollar terms. Revenue was AUD388.5 million, up from AUD336.2 million during the prior corresponding period.

Production volume totaled 3.2 million metric tons, up from a flood-affected 2.8 million metric tons a year ago. Export sales were 2.9 million metric ton, up from 2.7 million in the first half of fiscal 2011.

New Hope remains well positioned to deliver on growth with low-cost production, a significant development pipeline and a strong balance sheet, which includes USD1.4 billion of cash.

New Hope reported a 20 percent increase in reserves to 2,498 million metric tons following an increase in resources at its Lenton project in central Queensland. The company also completed the acquisition of the 19.2 percent of Australia-based coal explorer Northern Energy it didn’t already own.

The deal gives New Hope a foothold in higher-margin pulverized coal used in steelmaking and extends its thermal coal assets as well. It also brings critical port capacity to the table.

During its half-year conference call management noted the potential for negotiations with Japanese customers–who comprise the largest market for thermal coal–to put an extremely low floor under per-metric-ton prices for the year. Global coal prices are under increasing pressure due to the Europe-led slowdown and excess supplies of thermal and coking coal caused by the rapid growth in US gas production.

US coal consumption–particularly in the power industry–has declined, leading to mine closures, production cuts and the dumping of excess coal stocks into the Atlantic Basin markets. This has dragged down spot prices in Europe and Australia.

Mr. Neale pointed to 2012-13 contract prices settled around the USD105 to USD110 per ton range in early deals. That’s about 30 percent lower than prices of a year ago, when wet weather in Queensland and Indonesia, two of the world’s major suppliers, provided a boost.

On top of the potential for a serious second-half decline in the price of coal Managing Director Robert Neale warned as well of the impact of a strong Australian dollar on earnings.

That Japanese electricity companies on Apr. 11 secured an 11 percent reduction in the annual benchmark for thermal coal–which is established at Newcastle, New South Wales, Australia, a key export hub for the commodity–to USD115.20 per metric ton from USD129.85 is certainly not great news.

According to McCloskey’s Coal Report these recent benchmark settlements “account for the bulk of contract tonnage supplied from Australia and also influence the majority of metric tons sold to Japan’s industrial sector.”

But it’s better than what New Hope anticipated, and it’s higher than recent “screen” or spot prices for cargoes of similar quality Newcastle coal at USD106.75. This should ease at least some concern about the erosion of thermal coal pricing because of oversupply due to historically cheap–and getting cheaper–natural gas.

Whether we have a floor under thermal coal prices or a short-term decline matures into a medium- or longer-term one will largely rest on Europe, its credit situation and what it will say about consumption.

But management announced a AUD0.06 per share interim dividend payable May 2, 2012, to shareholders of record as of Apr. 17, 20112. The shares traded ex-dividend as of Apr. 11. As previously noted, this interim dividend is 14.3 percent higher than the one paid for the six months ended Jan. 31, 2011.

That higher dividend reveals that management, conservative on the public call, wasn’t overly concerned about Japan’s and/or Europe’s potential to damage the company’s second-half earnings.

Rather, what’s influencing the share price in recent days–the stock has declined from AUD5.40 to its present location near AUD5 since Mar. 28–is the crusade of newly elected Queensland Premier Campbell Newman to protect farmland from further coal mining.

New Hope seeks to double thermal coal output at its Acland mine in Queensland to 10 million metric tons per annum; the outgoing state government had granted the plan, New Acland, “significant project” status to fast-track it.  But Premier Newman, voted into office in early March on a platform that included opposition to Acland expansion, which would implicate crop lands in Queensland’s fertile Felton Valley, said on Mar. 28, according to The Australian, that it was “inappropriate” to expand the mine in Queensland’s southern food bowl.

“In fact, the Liberal National Party doesn’t support open-cut coal mining on strategic cropping land anywhere in the state,” a spokesperson for Mr. Newman reportedly said.

Despite the steep selling in its aftermath there is nothing definitive–or legislatively binding–behind what the new premier said. According to Queensland Resources Council (QRC) CEO Michael Roche, the industry advocate had established a “constructive relationship” with Mr. Newman and his team when it was in opposition around promoting good policy for the resources sector. The As of early April the QRC was still “looking forward” to working with the new government to deliver “investment certainty for the Queensland resources sector.”

And New Hope noted that the comment reported Mar. 28 “has been the LNP’s stated position during the election campaign and we will continue to work with the new LNP government.” New Hope had previously pledged to move a rail loading facility away from threatened areas if stage three of the New Acland project were to be approved.

The bottom line is recent selling, exacerbated by general fear about the state of the global economy and the direction of markets following a strong rally for equities around the world, is overdone.

We latched onto the New Hope story before the auction mania took hold of the stock, if only just before, because it’s underpinned by a single, basic but highly desired commodity, thermal coal. This story continues.

As management noted during its recent results call, “The high capital cost of new mines and associated infrastructure in combination with delays in approval processes is dramatically increasing the cost of new supply.” And timetables for projects counted on to come on line in the medium term may not be reliable, due to intensified approval processes.

New Hope, obviously, isn’t immune to these regulatory burdens. It is, however, well positioned because of its existing base of assets, its low cost of production, its strong balance sheet and what remains a solid project pipeline.

The International Energy Agency (IEA), in its Coal Medium-Term Market Report 2011, forecast that consumption of and prices for thermal coal will continue to rise over the next five years, despite efforts to reduce its use as a primary source of energy.

In its first report about the commodity, released in December 2011, the IEA concluded that strong demand in China and India, particularly for electricity generation, will keep coal, if not in the kingly state it occupied in the global energy hierarchy from 2000 through 2010, at least among the world’s primary fuels until 2016.

From 2000 to 2010 global coal use grew by 720,000 metric tons per day. This pace of expansion will slow–to about 600,000 metric tons per day over the next five years, according to the IEA.

The IEA projects that thermal coal prices in Asia will rise from USD127 per metric ton in 2011 to USD138 by 2016. Prices ranged from USD40 to USD80 per metric ton in the early 2000s before hitting a record of USD200 in 2008.

Beijing was until four years ago a net exporter of thermal coal but since has become the world’s second-largest net importer, behind Japan. According to research and consulting firm Wood Mackenzie, seaborne demand from China is set to grow from 175 million tons a year in 2011 to 1 billion tons a year by 2030. And India will grow from 80 million tons of thermal coal used in 2011 to about 400 million tons a year by 2030.

New Hope Corp trades on the Australian Securities Exchange (ASX) under the symbol NHC. It also trades on the US over-the-counter (OTC) market under the symbol NHPEF. As previously noted the stock is trading ex-dividend as of Apr. 11, 2012, for a payment declared Mar. 20 to shareholders of record Apr. 17. The next dividend–in respect of fiscal 2012 (end Jul. 31, 2012) final results–will be declared around the third week of September.

With the formal process for potential bidders terminated, New Hope is back to the task of, in its words, “delivering growth and shareholder value.” The 14.3 percent interim dividend increase is a good re-start.

New Hope Corp is a buy under USD6.